I'm a co-founder of NorthBridge Energy Partners, LLC., a consulting firm that helps companies connect assets to power grids. I'm also a former Senior VP of Energy Technology Services for Constellation NewEnergy, Inc., and have 20+ years of experience in the energy industry. I've written for the Boston Business Journal, Mass High Tech and several other online industry publications. I have a B.A. from Williams College and a Masters from Tufts University’s Fletcher School.

DOE Report on LNG Exports: A Green Light

The long-awaited (and twice delayed) report “Macroeconomic Impacts of LNG Exports from the United States” was released yesterday. This study was commissioned by the Obama Administration to look specifically at the economic impacts associated with potentially large-scale liquefied natural gas (LNG) exports. The key point of the study was to “estimate expected levels of U.S. LNG exports under several scenarios for global natural gas supply and demand” and to evaluate whether LNG exports would have net export benefits even if higher domestic gas prices resulted from this activity.

The study ran numerous scenarios, looking at costs of production and world prices, and found that there were net benefits to the US economy under all export scenarios, even where exports were modeled as unlimited. The study also found that there would be no ultimate linking of natural gas to world oil prices in any scenario examined (oil and gas prices are currently indexed in other markets, such as Asia).

As far as price impacts, the study found that “Natural gas price changes attributable to LNG exports remain in a relatively narrow range across the entire range of scenarios.” From the point where exports commence (initial prices could be up to $.33 higher), prices might increase as much as $1.11 five years out in a high export scenario. “The higher end of the range is reached only under conditions of ample U.S. supplies and low domestic natural gas prices, with smaller price increases when U.S. supplies are more costly and domestic prices higher.”

The economic losers are other gas-dependent industries, such as the chemical industry, where Dow and others are anticipating significant investments to take advantage of competitively priced gas. Dow, in particular, is investing $4 billion to build a 1.5 million tonne-per-year ethylene plant in Freeport, Texas LNG exports would also have a non-zero price impact on the electricity sector, which has increasingly turned to gas as the fuel on the margin.

The winners are the exporters and the large gas producers such as Range resources and Chesapeake Energy. Owners of nuclear fleets such as Exelon, Duke, and NRG will benefit as well. When the marginal price of electricity increases (driven by underlying gas prices), they derive more value from their existing nuclear assets (assuming they are unhedged).

The importance of the study findings is this: the would-be LNG exporters have filed permits equaling over 60% of today’s domestic consumption, and they are lined up to move forward with the permitting process. Most of these companies probably won’t make it through all the hurdles. The permitting process with the Federal Energy regulatory Commission can cost up to $100 million (that’s how much Cheniere indicates it will spend on approvals for its Corpus Christi facility).

The facilities themselves cost in the billions and take years to build. Cheniere will spend over $5 bn on its Sabine Pass facility – to be ready to export within the next 2 to 3 years. Another potential exporter, Exxon Mobil Corp., is partnering with Qatar Petroleum to build an installation near Port Arthur, Texas, involving some $10 billion to turn a gas-import terminal into one that capable of LNG exports.

The next steps will occur neither cheaply nor quickly. But the just-released study opens the starting gate for the next stage of the approval and development process.

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The USA does not need to Export Natural Gas. Rather, we need to use it for Heavy Duty transportation trucks and Automobiles and anything else that emits harmful gases into the air we breath. Natural Gas replaces Oil and Atomic Energy as a means of generating electricity.

Do you have an estimate on what the domestic to international price spread needs to be in order to justify the expense of liquification/shipping/deliquification?

I’ve heard about double works. I.e. if the domestic price is $4, and Asia is willing to pay $8, then it’s more profitable to export. But that’s (supposedly) right on the margin, if the domestic price is $5 and the international prices if $9 then it’s more profitable to sell domestically via pipeline.

James, I’m not the expert here, but the Economist put it like this (from my earlier blog this week): Cheniere Energy has signed agreements to sell US gas to a number of shippers at “Henry Hub prices with a 15% mark-up and liquefaction fees of $2.15 per mmBtu. After transport and regas costs, the price will probably be around $10 mBtu, still significantly lower than the $16 for oil-indexed gas. So if American gas prices were to go up to $4-5, there would still be money to be made.” 15% over current 3.75 would be just under $4.15. liquefaction another $2.15. So between $3 and 4 for transport and re-gasification? Great Q. I’m going to dig on this one. Thank you for reading and inquiring.

James – this December 2011 article in Pipeline and gas Journal may do it. http://pipelineandgasjournal.com/issues-facing-us-shale-gas-exports-japan?page=3

1) Delivery cost from field to liquefaction est’d $0.32/mmBtu 2) Liquefaction cost est’d $1.58. But Cheiere is currently getting Henry Hub prices with a 15% mark-up and liquefaction fees of $2.15 per mmBtu, and has pre-sold most of its LNG. So assume a higher price. 3) LNG shipping has a big range, from $0.28 – $0.89. I’d go with the high side 4) Storage and re-gas estimates from $.020 to $0.38

This article suggests we use a figure of $4. So $3.75 gas plus $4 for processing and transport would yield a healthy margin at anything north of $10, which is on the low side (that’s what Tokyo Electric and Gas was reportedly looking for in a long-term contract). Again, thanks for pushing me on this one. I intend to keep digging to find what variations in estimates may exist.

Thanks for all the digging. I still don’t buy the idea of putting a fixed price tag on the cost of liquificaition and shipping, since my understanding is the product itself is used to energize these processes.

Industrial consumers currently use about one-third of US natural gas. They are also the most elastic users of natural gas–the first to gain when prices fall, and the first to lose when prices rise. The study did not consider the impact on recently announced capacity expansions in these sectors, even though $100B in expansions are in the works due to the outlook for natural gas prices (without exports). Those projects — and the jobs associated with them — are at risk.

I don’t think the DOE failed to consider all comers. But the liklihood is that LNG exports will result in small price increases for domestic consumers.

More to the point, as the author details in the comments, the LNG export plants will only be used when the domestic market is significantly under-priced. If Henry Hub spikes up to anywhere near international prices, the domestic consumers can simply outbid the international consumers, since LNG is so expensive.

It is sheer insanity to export natural gas because the domestic market price is low—-and at the same time use petroleum at 6 to 8X the cost( over 60% of which is imported) to power our vehicles—–and at the same time drive jobs overseas and place additional economic burden on already struggling consumers and the overall economy.

This seems to me to be nothing but short sighted, bald faced greed. It tells me that the gas producers are more interested in stealing US resources to sell overseas to line their own pockets—–instead of developing the domestic market to make greater use of the natural gas. Sell out the future and the resources of the US because because they are too greedy, lazy and in such a hurry to get richer quick they are willing to sell out their own country on the auction block.

If this is the way the free market works—-then it is time to kill the free market. I think the people of the US should just say NO to this—– and use this resource to rebuild the US.

It is incredible our dependency of liquefied natural gas (LNG) and all that runs with this power. At least it makes diplomacy to work and global economy to be a more real scenario. Adam Mayer Chief MArketing Officer Housing Qatar www.housingqatar.com qatar accommodation